Tata Motors rights issue opens, shares fall

Mumbai: Shares in India’s Tata Motors fell as much as 6.6% as volatile markets raised concerns that investors may stay away from its Rs41.5 billion rights issues, which opened on Monday.

Tata Motors shares were down 5.3% at Rs353.40 on Monday Morning, just above a more-than-four-year low of Rs339 hit earlier this month. The benchmark stock index, which has lost more than a third of its value so far this year, fell more than 4 % on the day.

“There are no new concerns, but the overall market sentiment is very poor," said Sandep Shenoy, a strategist at PINC Research, who expects investors may wait for a week or two for the market to settle before subscribing to the rights issue.

Shares in India’s top vehicle maker have taken a hit on the company’s fund-raising plans and a grim outlook for the commercial vehicles sector, where demand has slowed on high fuel prices and rising interest rates.

Tata Motors has also said it was looking to sell stakes in some units to fund the deal, and analysts have said such a plan was preferable to the equity dilution the rights issues entail.

The two simultaneous but unlinked rights offerings, which were pared down from a planned three issues worth Rs72 billion, closes 20 October.

The company is offering one ordinary share at Rs340 rupees for every six held to raise to raise Rs21.9 billion. It is also offering one ‘A´ ordinary share, which has different voting and dividend rights, at Rs305, for every six shares held.

The proceeds will go toward early repayment on some of the short-term funding for its $2.3 billion acquisition of Jaguar and Land Rover earlier this year. A $3 billion bridge loan taken for the deal expires in June 2009.

Higher borrowing costs have encouraged several Indian firms to opt for rights issues in 2008, raising about $4.8 billion till mid-August, Thomson Reuters data showed, but volatile markets have been a dampener.

Top aluminium maker Hindalco Industries Ltd last week launched a Rs50.5 billion rights issue, to which response has been tepid, traders said. Its shares were down 2.7% at Rs96.45 on Monday, their lowest level in more than three years, and just above the issue price of Rs96.

Still, bankers to the Tata Motors issue remained confident.

Bankers said they expected the bulk of the subscriptions to come in toward the closing date of the issues.